China's factory output grew 10.4% in August

China's factory output grew at its fastest pace in 17 months and investment and consumption beat market forecasts, according to the latest data.

The news has increased confidence among investors that the world's second-largest economy has halted a slide and is building some momentum.

Following on from data this week showing robust exports and benign inflation, today’s figures add to the case the economy has bottomed out after slowing in nine of the past ten quarters.

The recovery path is set to be bumpy, especially as the US Federal Reserve could start tapering its stimulus as early as next week, although analysts say China is better positioned than other emerging economies to cope with any resulting capital outflows.

"The better-than-expected figures showed the recovering momentum of China's economy is stronger than market expectations," Li Huiyong, an economist at Shenyin & Wanguo Securities in Shanghai.

The data underpinned broad market optimism, with the CSI300 Index of top Shanghai and Shenzhen listings extending gains to 0.7% from 0.4% before the data's release.

Factory output jumped 10.4% in August from a year earlier, beating expectations of 9.9% and accelerating from 9.7% in July, to post its biggest increase since March 2012, the National Bureau of Statistics said.

Fixed-asset investment, a key driver of growth, grew 20.3% in the first eight months of 2013 from a year earlier, quickening slightly from 20.1% in January-July.

But growth in property investment slowed to 19.3% in the first eight months from a 20.5% pace in January-July, and the rise in revenues from property sales eased to 34.4% from 37.8%.

Retail sales, a key gauge of domestic consumption, rose 13.4% in August from a year earlier, up slightly from 13.2% in July to be fastest expansion since last December, when President Xi Jinping launched a frugality drive.

"Overall, the development in the Chinese economy is, just as we expected, moving towards a cyclical and temporary recovery. We are likely to see growth stabilising in the remaining two quarters and overall growth at 7.5%," said Amy Zhuang, senior analyst with Nordea Markets in Copenhagen.

"After that growth may gradually decline as Beijing is actively pursuing a lower growth in order to push through structural reforms."

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